EXCLUSIVE: Pawtucket Barely Avoided Fiscal Ruin

Pawtucket's rosy internal audit numbers don't tell the whole picture of how close the city came to the brink of disaster

Over the weekend, the city of Pawtucket released the results of an internal audit that showed the municipal side of its budget finished the 2012 fiscal year with a $2.7 million dollar surplus.

But a deeper analysis of that report for one of Rhode Island’s largest municipalities shows that the number isn’t as positive as you might first believe.

In fact, were it not for a little luck, a couple of risky moves and a mild winter, the city might very well have joined other distressed communities like Woonsocket and Central Falls and either gone bankrupt outright or at least flirted with state-controlled receivership.

And it was a problem few outside of the budget process itself knew the true extent of.

A Triple Threat

Prior to the 2012 fiscal year, the city of Pawtucket had run a combined deficit of nearly $4.2 million over the previous three fiscal years on its municipal side alone.

The numbers are daunting.

On the city side, Pawtucket had a $1.4 million deficit for the 2011 fiscal year, a $492,000 deficit for the 2010 fiscal year and a whopping $2.3 million deficit for the 2009 fiscal year.

And those figures don’t even factor in the school department’s budget, which represented nearly a third of city spending in 2012 and nearly sent the cashed-strapped municipality into a fiscal crisis in 2012.

Where There’s Smoke

Because of the difficult three-year period, the city entered 2012 with very little margin of error and, according to Administration Director Tony Pires, that led to a bit of a panic and a couple of hasty moves that may or may not have been proven legal.

“Halfway through year, we did not know where this was going to wind up,” Pires said this week. “We were projecting out at that time to be in the negative and we took some actions that were contrary to the collective bargaining agreement with regard to our firefighters because we had to save the city.”

Pires explains that, fearful the city wouldn’t meet its target budget and would potentially “be in a bankrupt situation,” Pawtucket rolled the dice on a trio of cutbacks to its fire department that it hoped would save enough money to keep the municipality afloat.

“We were seeing the school department’s numbers going into the tank so we initiated three things,” he said. “One is we told the firefighters that come June we would not be paying their holiday pay, which was a contractual responsibility. We also told them that we were going to unilaterally change the medical co-pays from what’s about maybe 12 percent to 25 percent and we also eliminated an engine company. We did that in order to reduce overtime.”

Pires said the city enacted those changes for the final six months of the fiscal year at a savings of $400,000 but, ultimately, Pawtucket will have to pay that money back following a loss to the firefighters when the grievance went to arbitration.

That takes the $2.7 million reported surplus, Pires said, and brings it down to a number more in the $2.3 million range.

“We’re going to have to pay out roughly $400,000,” Pires added, explaining about $280K of the cost will come from holiday pay and $120 from additional medical benefits that the city improperly collected as a result of its change.

But while those three moves didn’t pan out, Pires said, they were necessary risks at the time and Pawtucket’s hiring freeze and its panic to tighten its budget in other ways did alleviate some of the daunting issues the municipality faced.

Snow Daze

The city lucked out in a big way, in particular, when the 2012 winter season proved a lot milder than usual.

All told, Pawtucket saved approximately $500,000 in its snow removal budget and, with the help of a couple of unfilled municipal director positions that opened up at the beginning of January because, Pires said, “of the changes that were made in the pension system by the state in the MERS system,” the budget looked a lot rosier for the city in April and May than it did at the beginning of the fiscal year.

But that was before factoring in a major question mark that threatened to undo all the progress: How big a deficit would the school department run?

A Necessary Expense

Pires said the administration had decided early in the 2012 fiscal year to give its school department an additional proportion of $717,675 but, even after that financial injection, the city was projecting the school department would come in with “about a $1.8 million loss.”

It actually proved worse.

According to the final audit released this weekend, the school department had a total of $63,626,161 in state aid and other sources of revenue for the 2012 fiscal year but a total of $94,864,558 in expenses, the bulk of which came courtesy of a $54.5 million commitment in salaries and a $26 million commitment in “fringe and fixed charges,” which were both well over the original and revised budget numbers the city was working with.

And even with the city’s budgeted appropriation of $28.9 million, the Pawtucket school system finished the 2012 fiscal year with a $1,615,048 gap, meaning that the schools would have had a $2.3 million hole had they not received the additional funding.

That is roughly the entire amount of the projected municipal surplus number released this weekend, turning what was touted as a $2.7 million surplus into something closer to the $1.1 million dollar range.

Add in the above-mentioned firefighter expenses and, it appears, when all is said and done Pawtucket as a whole will finish the 2012 fiscal year with a net profit of closer to $700,000 range.

“When you do pure math, you’re exactly right,” Pires said. “When you figure the $400K that we have to pay back to the firefighters, you can see where it roughly is breakeven. “

A Step in the Right Direction

Even with the projected $2.7 million dollar surplus that is really closer to $700,000 once the firefighter costs and school budget deficit is factored in, Pires said the city should be commended for the work it did to avoid fiscal ruin.

“There’s no question the Mayor did an outstanding job,” Pires said of Pawtucket’s Donald R. Grebien, who first took office in January of 2011. “His entire team did more with less.”

Pires said the city’s final audit, regardless of how you analyze it is “great news for folks in Pawtucket.”

“I’m sure it’s great news for the state too because if we hadn’t done that, if we had performed at the level that was budgeted—and this is what people may miss—if we had done that and the school presents us with a $2.3 million dollar deficit, we would have been below water and that would have possibly would had the state come in with the commissioner or overseer or someone like that.”
Grebien agrees.

"This is very good news that represents the hard work and sacrifice of a lot of dedicated people,” he said in a press release last weekend. “I'm very pleased to see that our tight fiscal controls have reversed a series of annual deficits prior to my administration and that we are finally able to begin restoring our rainy day fund. We are continuing to do more with less, and this independent audit is simply a confirmation of that. We know we have a very long way to go and it's still a day-by-day process, but the city is now firmly headed in the right direction."

Pires said the city is currently tracking to be “about $500,000 to the good” for the 2013 fiscal year and seems to have solved its financial problems … for at least the time being.

In addition, he commended Gregbien for reaching out to the school department and pledging to work hand-in-hand with those in charge to settle that fiscal issue as well. According to Pires, Pawtucket is working on plans to consolidate IT services between the city and school departments and may even consider shared facilities management and janitorial services.

“We’re feeling very good but it’s like anything else,” he said. “It’s a nine-inning game and we’re holding our own in the fourth inning. We’ve still got a whole game to play and there’s a lot more work to do.”